Business Strategy vs. Product Strategy

In keeping with my recent theme of product planning, I’d like to focus in this article on an important distinction and source of frustration in many companies, and that has to do with the differences between business strategy and product strategy.

Many companies confuse or blur the two, and the result is easy to spot. The senior executives want to focus on the business strategy, but they find they are forced to make decisions at a level far below where they’re comfortable or usually even interested, such as which specific products, projects and even features to invest in, and what the interdependencies are between these features and projects, and often what is on the actual page and how to resolve conflicts.

And on the other side, the product managers feel like they don’t understand the reasons behind decisions that directly impact their products, they feel like the strategy is guard-railing every few months, and they don’t feel empowered to do their jobs.

Very often I’ll attend a product planning session with senior executives and they’re being presented with lots of detailed product plans but without the business context. When I ask where the business strategy is, I’ll often get a blank look. The team wants to make more money so these are the features they want to add, or so their reasoning goes.

Business strategy is about identifying your business objectives and deciding where to invest to best achieve those objectives. For example, moving from a direct sales model (your own sales force selling directly to customers) to an online sales model (your customers buy from your site) is a business strategy. Deciding whether to charge for your services with subscriptions or transactions fees or whether you have an advertising-based revenue model is a business strategy. Deciding to move into an adjacent market is a business strategy.

Now, clearly there are some big product implications to each of these business strategies. But they are not one in the same. There are lots of ways to sell online, lots of ways to monetize value, and lots of ways to develop or acquire and integrate an adjacent offering. The product strategy speaks to how you hope to deliver on the business strategy.

Moreover, while the business may believe something is a great business opportunity, you don’t yet know if your company can successfully deliver on this opportunity. Maybe it will cost too much to build. Maybe customers won’t value it enough to pay for it. Maybe it’ll be too complicated for users to deal with. This is where product strategy and especially product discovery come into play.

The business maintains a portfolio of investments, and the business can and should adjust that portfolio mix as businesses and markets develop.

Take as an example Amazon. They’ve got a portfolio of investments including their core e-commerce offerings by category, they’ve got third-party selling, they’ve got an infrastructure technology (cloud computing) business, and they’ve even got their own growing consumer electronics business (love that Kindle 2). I especially like Amazon as an example because they illustrate so many points of good business strategies (and good product strategies).

Amazon may have made their business in selling hardcopy books and they’ve been a great innovator there, but instead of spending all their time trying to protect that business, they’ve also got an investment that could one day revolutionize that entire business. To Amazon’s credit, they realize that if they don’t pursue this someone else probably will. Similarly, they have worked hard to create innovative technologies to allow them to provide a differentiated e-commerce customer experience, yet they also have been leaders in making that technology available to others (Amazon Web Services) because it’s possible that cloud computing business will one day be even
larger than what they can ever do themselves as an online retailer.

That’s a business strategy and you can see their portfolio planning. Now each of these businesses has one or more product strategies. As an Amazon user you can see the evolution of the e-commerce retailing business. You can also see the evolution of the Amazon Web Services product line; every few months another piece of the puzzle is launched. You can see the evolution of the electronic reader and the supporting technologies.

Think of it this way. The business strategy and business portfolio planning provides a budget and a set of business metrics. The product organization then lives within that budget to pursue as aggressively as possible the best ways to hit those business metrics.

Some product strategies will prove more successful than others, and this will impact the business portfolio planning. And not every business of course will resonate with customers, so a big part of business strategy is knowing when to continue to invest and knowing when to cut your losses so that you can invest elsewhere.

So business owners and senior executives are responsible for the business strategy and the business portfolio planning, and the product organization (especially the directors of product management) are responsible for the product strategy and the product portfolio planning. Keep these two concepts straight and I think you’ll find that you will have more clarity and understanding in terms of objectives and responsibilities, as well as better managed business and product portfolios.